Small is Beautiful

The ongoing sluggish housing sales and inventory pile up in the backdrop of unaffordable housing prices is proving to be a perfect roil to make realty developers return to basics of the business. While the broad market continues to be listless, home-buyers seem to be responding well to low income and affordable offerings.

Falling home loan rates and torpid property prices are prompting end users to finally take the plunge. However, it is clearly restricted to this segment only as the impending demand continues to be huge here.

According to a recent report, sales of affordable houses priced below Rs 25 lakh rose over 45% on-year during January-March quarter across top eight property markets including Mumbai Metropolitan Region, Delhi-National Capital Region, Bengaluru and Pune. During this period, sales of homes priced in the range of Rs 25-50 lakh also grew 13% from a year ago.

This is in complete contrast of what we are seeing in broad market and goes on to prove the basics of business; right mix of price and product that would hardly face failure even in today’s sluggish property market.

There was no doubt raised over demand for affordable segment, ever. Even in the earlier property market cycles in late 1990s and early 2000s, it was the demand for affordable housing that continued unabated. This is proving to be correct yet again during the current slowdown. It’s not that developers have forgotten this, but at times they tend to get carried away by high margins in luxury segment.

Several realty developers have learnt this lesson hard way. Nonetheless, many are now focusing on the sweet spot in their respective markets and are working on making their products affordable by realigning their strategies.

In many cases, developers have been trying to attract home-buyers by reducing property prices. This is true for some regions, but builders across markets are working on strategy of constructing apartments with smaller configuration. This is helping them achieve the goal to make houses affordable for buyers by reducing average apartment size rather than reducing the capital values in a significant manner.

Offering an affordable home is not completely in control of private developers. They expect government, as a facilitator, also to act and encourage such moves through suitable tax exemptions or any other incentive. However, this need not be a precondition for them to build more affordable houses as latest figures reinstate that clear business basics never go wrong. After all, good things come in small packages.

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